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The many extracts on these pages are from copyright material. they are owned by the reference given or its owner. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest. They should not be reproduced for commercial purposes. The material is selective and I have not included denials and explanations. I am not claiming that all of the allegations are true. The intention is to show the general thrust of corporate practices as well as the nature and extent of any allegations made. I have made my comments on the basis that there is some substance to the reports but I am dependent on their accuracy.


Profit versus Care

This page gives an overview of the way in which the pressures for profit have impacted on care in the various sectors of the US and Australian health care marketplaces.


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Conscience and Probity

In any profit based organisation profits and care compete directly for the available dollar. There is therefore a conflict of conscience and when resources are limited the conflict becomes much more acute. Most modern funding systems place a cap on fees paid for care. Managed care is particularly ruthless in restricting funding. Because funding is limited and must be stretched, profit always comes at the cost of care which could have been provided. Pressures to generate ever larger profits are pressures to reduce or manipulate care.

For profit corporations enter the market in order to generate profits and they feel that they are entitled to take profit from the system. This is why they are there. The stronger the market pressures for profit the greater the pressure on the profit/care conscience decision. In a strongly competitive share market survival depends on the generation of large profits in order to grow and resist hostile takeovers. While the permutations and combinations are infinite the broad generalisation that profit and acceptable care are inversely related seems to have validity. This is what a sensible assessment of the situation would predict.

Those able to ignore their consciences succeed at the expense of those who can't. The system selects for the very worst sort of people - those we would consider to lack probity. Of interest are the patterns of thought they develop and the explanations they use to justify their practices.

Our society considers that the providers of health care should be people who can be trusted to behave in a socially responsible way even under pressure - to put the care of patients ahead of other personal considerations. We use the old fashioned term "fit and proper". This is why the probity provisions in Australia's licensing regulations have become so important and why their erosion by corporate and political forces is so disturbing.

This page examines the way the different sectors of the corporate industry responded to this situation. It addresses the extent to which business executives were able to compromise their consciences. It shows how profit impacted on care and how treatment decisions were made in the board room.

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The US Marketplace

Nursing Homes

Policies and practices:- Nursing homes differ from hospitals in that the most important factor in care is the quality and quantity of nursing. This is also the major cost. Any attempt to cut costs must be made by reducing nursing. Therapies on the other hand were provided in nursing homes on a fee per service basis. Therapists increased profits.

The patterns of thought which developed in nursing home corporations are best reflected in a very assertive interview given by Sun Healthcare's Andrew Turner in 1996. He claimed that there was plenty of fat in the system and that nursing home care could be provided more efficiently by cutting the fat. He referred specifically to nursing care. This would have been music to politician's ears as this was what they wanted to hear and it came from the chairman of one of the most successful aged care companies - an acknowledged expert. The corporate groups enjoyed strong political support. They were seen as "reforming" the system using "market principles".

The corporate nursing home industry across the USA had already been reducing the number of staff and replacing trained staff with nursing aids for a number of years. A 1994 study which gave an early warning of problems in corporate homes when compared with not for profit homes was ridiculed and attacked. Sun and other groups including Vencor and Integrated Health Services followed this path. Those who failed to do so would not have survived on Wall Street.

Because of the profits which could be generated these companies also specialised in therapies and recruited therapists from around the world including Australia. There was it appeared an enormous demand for therapies of various sorts in nursing homes. They made money.

The Nursing Home Scandal:- Repeated warnings by nursing groups who described falling standards were considered to be due to self interest. They were ignored. Since mid 1997 there has been a progressively growing scandal as dreadful standards of basic nursing care have been exposed across the USA. These have been primarily in homes run by publicly listed corporate chains. Investigations in several states have revealed a pattern of performance. Not for profit groups persistently perform best. Market listed for profit companies consistently performed very poorly. Privately owned companies were very variable, some performed well and others very poorly. It does not require a degree in sociology to relate this to the market pressures on these three groups which I describe in another page.

The Market and Clinical Decisions:- There have been a number of fraud investigations relating to the misuse of therapies and Sun Healthcare was a prime target. These were clearly difficult to prosecute and were abandoned. Instead the government changed the funding for therapies including the cost of therapies in an increased nursing home reimbursement and so capping expenditure. There was no additional money in therapies. Like nurses therapists became an additional cost.

The demand for therapies miraculously vanished and many thousands of therapists were fired. There was a glut of therapists and their salaries fell. This is one of the best examples of the way in which the market and not clinical condition decides the care which patients receive. Decisions about care are made in board rooms not at the bedside. Dave Lindorff described this in his book "Marketplace Medicine" in the late 1980's. He was ignored.

Instability of market listed companies - impact on care:- A large profit stream built on exploiting the therapies, fraud and drastically reduced nursing services enabled these companies to raise massive loans to fuel their growth. By doing so they secured market dominance and market support. When the profit stream was reduced they were unable to service their loans and by 2000 five of the largest companies have entered Chapter 11 bankruptcy. Others were struggling. Shares which once traded for US $20-40 traded between 5 and 10 cents. The consequences of these intense market pressures can only be guessed at. Correspondence which has become public reveals that federal and state regulators were alarmed and oversight of nursing homes was stepped up.

Nursing homes are a good illustration of the corporate process:- The nursing homes are a good example because the treatment is readily grouped into two streams and the market is readily analysed. Because a single factor, nursing is all important for care the consequences of cost cutting are more readily apparent. Different aspects of the aged care market are discussed in more detail on this www site.

CLICK HERE -- to go to more information about Nursing Homes

CLICK HERE -- to get more information about Sun Healthcare

CLICK HERE -- for much more about Andrews Turner's views on nursing home care

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Getting Information

The patterns in the rest of the health care market are more difficult to analyse because the diseases treated are more diverse and the care is dependent on multiple factors. There are a variety of different specialties and specialty hospitals. Cost cutting is more widely spread and has multiple different consequences. The development of managed care during the 1990's has further compounded the problem in evaluation. Corporations control the information so that objective assessments are based on fairly crude government surveillance data.

In general the data follows a similar pattern to that in aged care. It indicates that responses and treatment decisions have been influenced by marketplace pressures in predictable ways. Similar patterns have been shown in care. Because Tenet/NME was the subject of multiple fraud and patient care actions and because its practices generated so much revulsion many documents were leaked and many spoke out. It entered Australia and was eventually forced out. Large numbers of documents reveal its practices and its corporate culture. These were obtained by citizens in Australia in order to force the company out. There is sufficient documentation from other corporations to show that similar patterns of thinking and conduct were industry wide and that they have persisted despite the massive fraud settlements made by Tenet/NME in 1994.

Analysing the hospital health care marketplace

In examining the health care marketplace it is important to understand the historical paths it has followed and the overlapping types of care as the market dynamics are different. The dynamics of the corporate provider era overlap with the later managed care era. Corporatised market listed health care roughly follows 10 year cycles. Each lasted only long enough for its problems to appear.

Corporations control and retain hard data and fully objective measurement is therefore hard to come by. There is however a wealth of material available about the last two decades from which solid conclusions can be drawn about the way market pressures operate. Graeme Samuel from Australia's National Competition Council, speaking to the World Bank claimed that his model is crucially different to the US system. My assessment is that the differences are minor. The pressures which Samuel claims are central to its success are exactly those marketplace forces which have caused the problems in the USA.

1970's:- The 1970's were the years of general hospital expansion. There were many allegations of excess charging and fraud but no investigations and little concrete evidence. The FBI were aware of fraud but did not have the resources to investigate. The major professional colleges were powerful and they exerted tight control over their members and the care provided. A visiting professor from a Humana run teaching hospital explained to me in the early 1980's that it was necessary to watch corporate managers all the time. The moment he turned his back nursing staff were cut. The profession was cohesive and patient care it seems was generally maintained. Government responded to the fraud by introducing Diagnostic Related Groups (DRG) funding.

1980's:- The 1980's were the years of expansion into specialty hospitals where profits were not constrained by DRG's. Patients were exploited, misused and abused for profit. There was massive fraud. Professional Associations in these specialty areas were less cohesive. Many doctors entered into golden handcuff contracts effectively selling the use of their medical degrees to corporate interests. It was very competitive and the majority of the corporate groups owning specialty hospitals indulged in these practices. Decisions affecting care were made in the board room. Once again patterns of thought had been developed to make these disturbing practices not only legitimate but desirable. Large numbers of citizens, even children were conned into admitting themselves to psychiatric hospitals, substance abuse facilities and rehabilitation units where they were kept for prolonged periods and exploited for profit.

CLICK HERE -- for a description and analysis of this conduct in the 1980's

1990's:- The 1990's saw the development of managed care. This was an attempt by the market to correct the excesses of the profit generating 1970's and 1980's. Managed care essentially attempts to correct these excesses by setting up a system of purchasers (Health Maintenance Organisations - HMOs) which make their money by restricting care. They use contracts to screw down pressure on the providers of care and reduce costs. Corporate providers and doctors are their prime targets. They make more money by denying and restricting care. This system introduced much stronger competitive pressures and increased the forces acting on the profit versus care conscience decision. Vast numbers who needed care were denied it. US citizens were outraged but a citizens movement to secure a patients bill of rights was frustrated by corporate political influence and only marginal changes were secured.

Not for profit and academic institutions were, because of their primary mission of care and their modes of operation unable to compete in this new marketplace. They were soon in trouble and had to sell up. As a consequence community assets were bought up at fire sale prices. Aggressive market companies bought them up so rapidly that this was known as Pacman activity. Governments were forced to step in and protect community assets.

CLICK HERE -- for more information about managed care

CLICK HERE --- for more information specifically about Columbia/HCA's PACMAN activity

CLICK HERE --- for more information specifically about Tenet Healthcare's PACMAN activity

The 1990 era during which providers were squeezed by purchasers was also characterised by massive fraud in general hospitals and in laboratory services. Because Columbia/HCA, the prime offender attempted to enter Australia and was repulsed we have good information on the general hospital fraud and only limited information on the laboratory fraud. SmithKline Beecham and Quest Diagnostics, two of the groups who were implicated in the laboratory fraud operate in Australia.

Columbia/HCA's marketplace thinking is also well documented. Its Macmedicine approach was modeled on Macdonald's and on Walmart. Its aggressive marketing, business and legal practices disrupted the entire health care service. Charitable services to the poor were terminated. Needed clinical services which were not profitable were closed. Valuable community services and possessions were lost. Staffing was cut. The quality of care was inferior to that provided by the not for profit hospitals which could not compete and were taken over. Decisions were made in the board room in the interest of the company's profits rather than the good of the local communities. Services to the community were truncated in order to serve the interests of Columbia/HCA. There are reports of poor care at some hospitals.

CLICK HERE --- for a web page devoted to problems in care at Columbia/HCA facilities

The 10 years starting in 2000 got off with a bang. The success of HealthSouth, the giant rehabilitation company was found to be based on a US $4 billion accounting fraud. Tenet Healthcare found a loophole in the DRG system. If it treated complex diseases and very sick patients it could charge much more than the DRG system allowed. It specifically targeted these sicker high risk patients including cardiac, spinal and joint surgery. The reports suggest that it did not spend the money on the staff needed to care for these patients. The nurses were soon up in arms producing reports to show how staff were being cut and standards were being compromised. Reports of failures in sterilisation and of excessively high infection rates started to appear. The bubble finally burst when it was discovered that doctors in at least one Tenet hospital were doing high risk cardiac procedures and bypass surgery on patients who did not need this treatment, many of them with normal hearts. Vast profits were generated in this way.

CLICK HERE -- to explore this fraud.

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Nursing Homes

His report is understood to contain a scorecard comparing successful nursing homes that have undergone restructuring to ensure their survival with weaker performers hindered by inefficient management

Professor Hogan, an economic rationalist, believes charity and good management can coexist and has designed reforms aimed at reducing the industry's dependence on commonwealth funding. New Demands for aged care bonds. The Australian March 2, 2004

In 1997 the government privatised the aged care system, a measure which was extremely unpopular. It created such an outcry that the harsh economic measures were softened. That the community's anxiety was well founded was revealed in the scandal which erupted in February 2000. Nursing homes across the country were shown to be indulging in unacceptable cost cutting so that there was wide spread neglect. Some even cut the costs of food to the extent that patients were not being properly fed. In another instance a scabies outbreak was treated with paraffin baths instead of more expensive medical applications. Several patients sustained chemical burns.

The government appointed an economic rationalist to review aged care. His solution, more economic rationalism is to be released in 2004. The press reports do not say how care was recorded on his score cards (see above) and how efficient restructured compared with what he described as inefficient and unrestructured. Nor do the reports indicate how care is to be protected from the further economic pressures introduced.

CLICK HERE -- for more information about aged care in Australia

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In 2000 Mayne brought in corporate whiz, Peter Smedley to fix its struggling health care business. Smedley fired experienced health care managers appointing economic managers in their place and establishing a commercial model of health care. He immediately set about reducing costs by reducing nursing levels and deskilling. As these measures impacted adversely on care doctors started to speak out. They took their patients to safer hospitals. Mayne's profits plummeted and Smedley departed in 2002. Smedley had not learned from the US experience, and the insights of Califano. He did not have control of the doctors incomes. His predecessor Barry Catchlove and Health minister Michael Wooldridge had failed in their attempts to bind the doctors interests to those of the corporation through contracts. Smedley tried to do it without them.

The solution to Mayne's new problems was a typical market solution, the sale of the hospitals to bankers and venture capitalists. These were people with an even stronger focus on profits and an even stronger incentive program. They are likely to find some way of linking doctors interests to those of the company. Their US experience in health care will tell them that this is essential for market success.

CLICK HERE for more about Mayne Health and Smedley.

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General Practice

General practice is the one area where Australian doctors were weak and where they gave way. The real profits from General Practice lay in the doctors' referrals and not in the care which they provided. Corporations bought up doctors practices for excessively large sums. They paid for the practices with inflated shares which soon fell in value. As a consequence doctors were left with a financial stake in the business, so binding them to the corporate mission. To produce a large profit from general practice it would be necessary to increase both the turnover and the referrals from the general practice. Neither makes for good care or an empathic service. Companies which adopted the economic model of care more closely, were profitable but they earned criticism from the medical profession and from the Health Insurance Commission for the way they did this. The quotes below refer to Primary Health in Australia.

Listed two years ago, Primary is now considered something of a model, and its stock has skyrocketed, taking market capitalisation to about $400 million.
Confidential reports, prepared by a panel of doctors nominated by the profession and appointed by the Federal Health Minister, identified a range of problems including inadequate medical records and poor clinical input. In the mid-1990s, the Health Insurance Commission "counselled'' a large group of doctors at Bateman's medical centres over concern they were seeing high numbers of patients
Big Business Targets GPs In National Buying Spree, Australian Financial Review 23 May 2000

"A lot of people talk about [rationalisation] and wring their hands but we're going to do it," he (MD Primary Health Dr.Bateman) said. The Primary Vote Shaky, Australian Financial Review July 4, 1998

" The medical practice management company (Primary Health) has been something of a market darling over the year, with its shares having gained 245 per cent since new year, closing 10cents stronger at $5.35 yesterday. Australian Financial Review December 1, 1999

Announcing the acquisition of a pathology company last year, Bateman told the ASX that part of his company's plan was to enhance the "operating profit per patient''
While Primary Health Care is enthusiastically endorsed by market analysts, there are questions about some aspects of the way medicine has been practised within Bateman's empire which has been built over more than a decade. In fact, several of the company's top earning doctors have been involved in a long running legal battle with the health authorities over the way they practise medicine. The battle has been fought out through both internal watchdog hearings involving the Canberra-based Professional Services Review, and Federal Court cases.
The Australian Financial Review has discovered that: In 1997, in secret hearings in front of their peers, three GPs practising at centres run by Bateman were found to have practised "inappropriately''.
In the mid-1990s, the Health Insurance Commission "counselled'' a large group of doctors at Bateman's medical centres over concern they were seeing high numbers of patients.
A contract offered by one of Bateman's companies to GPs, while affirming clinical autonomy, explicitly requires doctors to promote the interests of the company a contract described by one GP leader as "coercive''. The contract also specified that patient records belonged to the company, rather than the doctor. A doctor who spent six years working at one of Primary Health Care's key medical centres and recently left after a dispute over money, told The Australian Financial Review that in his view "ever since corporatisation has taken place, what has happened is the objective of any medical centre is the bottom line''. Speaking generally about medical centres, Dr Deepak Malhotra said it was his view that "increased turnover, increased pathology, increased radiology, these are the things that make money ... ''.
But while the watchdogs may have concerns, the market has nothing but adulation. The company's share price has almost quadrupled from $1.50 to $5.50 in just two years.
Indeed, further clauses of the contracts supplied by Bateman state "the doctor must use his best endeavours to promote the interests and welfare of the company's business and must, subject to the preceding clause, diligently observe all the lawful directions of the company given at any time ... '', and further, ``the doctor must support on appropriate occasions, by word of mouth and appropriate referrals, the medial and paramedical services available at the premises''.
Big Business Targets GPs In National Buying Spree, Australian Financial Review 23 May 2000

CLICK HERE -- for more information about General Practice Corporatisation in Australia

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Market response to economic pressures

Events in the health care marketplace in the USA give an indication of the response of the market to adverse economic factors and the instability which this creates for patients and their care. I have described how intense competition and the demands of the market for a large profit stream caused companies to behave imprudently, stretching themselves in order to survive and resist a takeover. They had to manipulate care to succeed. These excesses have been followed by collapse into scandal and fraud allegations with large losses. These in turn have put even greater pressure on care. Companies have recovered spectacularly by continuing with the same or similar practices leading to the next scandal in the cycle (see Tenet Healthcare).

When changes were made to Medicare to stop rorting many companies could not cope with this. The most profoundly affected have been aged care corporations but other health care groups including managed care have found themselves in difficulties. Several large aged care corporations were threatened with bankruptcy - at least five entered Chapter 11 protection and some did not emerge from this. There has been a national outcry about the standards of care of for profit nursing home corporations, particularly those traded on Wall Street. An analysis of death certificates suggests that thousands have suffered needlessly and died prematurely. This analysis is confirmed by government investigations.

US State and federal governments were alarmed at the prospect of care deteriorating further as a result of the financial pressures, and of suddenly having to assume responsibility for hundreds of nursing homes if they went under. They no longer had the expertise or the staff to do so. They fell over backwards to assist corporate criminals threatened by bankruptcy, reducing fines to little more than tokens in order to keep villains in business. In 1999 politicians loosened up the funding to ensure that the companies survived.

The share prices of companies like Columbia/HCA and Tenet/NME plunged during 1997-9. Managed care shares also plummeted at this time but recovered after the citizens revolt was subverted by corporate might. Tenet shares plummeted in October 2002 when it was once again embroiled in scandal. Columbia/HCA, now renamed HCA did well for a while but in 2003/4 it has been affected by the general disenchantment centred around Tenet's aggressive surgery for profit scandal.

CLICK HERE -- to go to the main page about US corporate practices

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What about the not for profit groups?

Not for profit nursing home groups performed better economically under the funding pressures introduced by Medicare changes in 1997. They were concerned with care rather than profit and growth. They did not have large loans. Reports from across the USA show that they maintained superior standards of care. These not for profit nursing home groups which previously struggled to compete survived the change in funding but were soon under corporate pressure when the purse strings were loosened a few years later.

Not for profit hospital groups have been forced to adopt many of the competitive practices of the corporate marketplace in order to survive. They do seem to have kept their eye on their mission. Studies now indicate that not for profit hospitals serve the community better, are less costly, have fewer complications and a lower mortality rate. This focus on service increases costs and does not help them to compete. The market model fails in health and these groups soon become takeover targets. They are "restructured" by the new corporate owners in order to make them profitable.

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This page created April 2000 by Michael Wynne
Sections rewritten and additions made February 2004